Texas Windstorm Insurance Reform Bill Fails, But Could Be Revived

A bill to reform the Texas Windstorm Insurance Association (TWIA) failed last month in the legislature, falling one vote short in a procedural vote in the state Senate. "The bill would have helped the Texas Windstorm Insurance Association to acquire the funds necessary to be able cover all the claims that would come if a catastrophic storm were to hit the state," explained a report by South Texas TV station Kiii Channel 3 ("Texas Windstorm Insurance Bill One Vote Short in Texas Senate").

TWIA is the state's "insurer of last resort" for coastal properties considered too risky to be insured by private-sector insurance companies. Currently, TWIA holds only $300 million in cash reserves — too little to cover payouts if a catastrophic hurricane hits the coast, reports TV station KZTV10 ("Windstorm Bill Dies in Texas Senate," by Andrew Ellison). "The bill would have given TWIA the ability to raise billions of dollars to pay claims in the event of a major storm," the station reports. "To share the financial burden of raising that money, funding would come not just from policy holders along the coast, but from policy holders all across Texas, and the insurance companies themselves."

Insurance companies whose assets would be tapped by the plan have opposed the idea from the beginning. But the bill's author, State Senator Larry Taylor, pins blame for the bill's death not on industry opponents but on one key player: Houston trial lawyer Steve Mostyn, a major donor to Democratic campaign efforts in the state. KRIV FOX 26 has this report: ("Lawyer Mostyn Accused of Killing Windstorm Reform," by Greg Groogan). "The Friendswood Republican claims a vote on his compromise measure designed to return the Texas Windstorm Association to financial viability was blocked by Democratic Senators at the sole direction of mega political donor and Houston lawyer Steve Mostyn," the station says. "Mostyn is reported to have reaped more than a $100 million in profit litigating Hurricane Ike claims, much of it from Texas Windstorm."

To secure insurance industry support for the reform bill, the authors included language that would have limited litigation over claims — a threat to the lucrative practices of the state's trial lawyers. In Mostyn's case, there's big money at stake: days after the reform measure's failure, Mostyn's firm announced a settlement in a class action lawsuit targeting TWIA on behalf of thousands of homeowners who wanted more money out of the insurance group for claims resulting from Hurricane Ike, which hit Texas back in 2008, killing dozens and flooding an estimated 100,000 homes.

"Mostyn, a major Democratic campaign donor, released a statement to announce that he had reached an agreement to settle the claims of 1,200 homeowners for an approximate amount of $135 million," reported the Texas Tribune ("Mostyn Announces $135 Million TWIA Settlement," by Chris Hooks. "TWIA, the state's insurer of last resort for Texas' coastal regions, has been bedeviled for years by legal challenges over the cost of damage caused by Hurricane Ike. The new settlement brings the total amount of claims paid by TWIA to more than $500 million."

But the $135 million will come out of the association's remaining $300 million in cash assets — already considered inadequate to cover the company's risk exposure. And even before the settlement, Texas Insurance Commissioner Eleanor Kitzman had proposed sending TWIA into bankruptcy. The Texas Tribune reported in March that TWIA's books were upside down ("Board Tables Proposal to Put TWIA Into Receivership," by Becca Aaronson and Audrey White). "TWIA's current liabilities exceed its assets by $183 million," the Tribune reported.

Under current law, the TWIA already has the power to assess other insurance companies in the state to make up for its own lack of funds, the Tribune noted. "The TWIA board of directors considered a proposal to assess $830 million from private insurance companies to cover Ike losses in 2008, but the proposal was rejected in a 5-4 vote, with the five insurance industry representatives on the board voting no, and the four coastal resident representatives voting yes."

Meanwhile, there's a chance that legislators will get one more opportunity to fix the system this year. Texas Governor Rick Perry has already called lawmakers back for a special session to consider redistricting legislation. And Perry, who as governor has power to set the agenda for the special session, has said that he may add the windstorm insurance problem to the action list, according to the Houston Chronicle ("Perry hints he may add windstorm agency to special session," by David Saleh Rauf and Peggy Fikac).

But Perry is under pressure from all sides to add a variety of hot-button issues to the legislative agenda. And aside from the redistricting legislation, he isn't making any promises. Said the Governor: "We're not going to be adding things to the call just for the sake of adding things to the call."